Resentment against fin institutions due to LIBOR scam: INET

"With the stresses in Europe, the stresses of deleveraging around the world, fears of another downturn, the idea that regulators and legislators have not cleaned up our capital markets with reform in response to the calamities of 2008, are regaining momentum. People are getting more and more demanding on governments to rein in finance in its axis," he tells CNBC-TV18.

Below is the edited transcript of the interview.

Q: What is your reaction to the LIBOR scandal? How will it impact banks and the fact that it is not just Barclays but half a dozen banks that are now under investigation?

A: The integrity of capital markets matters very much to the quality and vibrance of economic activity productivity growth and when trust is destroyed because people are manipulating markets. Essentially, they hold these interest rates too high it makes everyone suspect, less trust in financers and it damages the entire system.

Q: But this isn't the first time that doubts have been raised. Over the last few days, we found out that the New York Fed raised an alarm all the way back in 2008. There have been debates on before that as well regarding the accuracy and the integrity of the data being reported as LIBOR. What do you in your assessment think of the systemic issues with LIBOR that now thanks to this scandal may have an opportunity to be redressed?

A: What is different about this scandal is that the abuses from the financial sector which became increasingly apparent in 2007-08 and 2009 are now mature. People are frustrated. There has not been more substantial reform.

With the stresses in Europe, the stresses of deleveraging around the world, fears of another downturn, the idea that regulators and legislators have not cleaned up our capital markets with reform in response to the calamities of 2008, are regaining momentum. People are getting more and more demanding on governments to rein in finance in its axis.

Q: What do you think would make for a better process in order to prove LIBOR from this kind of data manipulation that we have seen in the last years especially in the Barclays case?

A: In a bank market, by its very nature, is over the counter market or some legislatures in America called a dark market meaning oligopolistic meaning highly concentrated firms are playing games and setting things to their own benefit.

I would prefer to see a transparent exchanged based system where the LIBOR is set in a way where people can see the previous bid, the previous spectrum of offers and bids around the clearing rate and see how that changes through time with very high frequently publicly posted pricing and take this out of this kind of dark corner where people set the rate rather than having market clearing determined the rate. Then I think future exchanges are much better than over-the-counter as a mechanism.